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DECISION

Approving the scheme on orientations for official development assistance attraction and use in the 2006-2010 period

THE PRIME MINISTER

Pursuant to the December 25, 2001 Law on Organization of the Government;

Pursuant to the Government's Decree No. 131/2006/ND-CP of November 9, 2006, promulgating the Regulation on management and use of official development assistance;

At the proposal of the Minister of Planning and Investment,

DECIDES:

Article 1.- To approve the Scheme on orientations for official development assistance attraction and use in the 2006-2010 period (enclosed with this Decision).

Article 2.- To assign the Minister of Planning and Investment to submit within 03 months after the effective date of this Decision an action plan for implementing the Scheme to the Prime Minister for approval.

Article 3.- This Decision takes effect 15 days after its publication in "CONG BAO."

Article 4.- Ministers, heads of ministerial-level agencies, heads of government-attached agencies, and presidents of People's Committees of provinces and centrally run cities shall implement this Decision.

Prime Minister
NGUYEN TAN DUNG

SCHEME ON ORIENTATIONS FOR OFFICIAL DEVELOPMENT ASSISTANCE ATTRACTION AND USE IN THE 2006-2010 PERIOD

(Promulgated together with the Prime Minister's Decision No. 290/2006/TTg of December 29, 2006)

FOREWORD

The Party and State of Vietnam advocate the mobilization of all internal and external resources to achieve the objectives and tasks defined in the 2006-2010 socio-economic development plan already approved by the Xth National Party Congress (in April 2006) and the National Assembly of the Socialist Republic of Vietnam (the XIth legislature, 9th session).

The aims of the Scheme on orientations for official development assistance attraction and use in the 2006-2010 period are to set out a strategy and measures for attracting, allocating and effectively using this important resource, contributing to the successful implementation of the above 5-year socio-economic development plan. This Scheme has been elaborated on the following grounds:

1. The 2006-2010 socio-economic development plan;

2. The Government's Decree No. 131/2006/ND-CP of November 9, 2006, promulgating the Regulation on management and use of ODA;

3. The evaluation of ODA attraction and use in the 2001-2005 period;

4. The Hanoi Core Statement on Aid Effectiveness;

5. Orientations for management of foreign debts till 2010;

6. The findings of the survey on tentative donor commitments to provide ODA to Vietnam in support of the implementation of the 2006-2010 5-year socio-economic development plan and the continuation of comprehensive socio-economic renewal.

I. THE ODA SITUATION IN THE WORLD

At the International Conference on Financing for Development held in Monterey, Mexico, in March 2002, the international donor community pledged to increase ODA for poor countries to realize the Millennium Declaration and Millennium Development Goals (MDGs).

The world ODA tends to not only increase in volume (from about USD 90 billion in 2005 to a projected amount of about USD 150 billion by 2010) and also be subjected to higher requirements on the quality of its use. However, the proportion of ODA to average gross domestic income of developed countries reaches only 0.39%, far lower than the target of 0.7% set by the United Nations General Assembly. According to the 2005 Development Cooperation Report of the Organization of Economic Cooperation and Development (OECD), in the donor community only some countries such as Norway, Denmark, Luxemburg, Sweden and the Netherlands achieved or overachieved this target.

In order to increase development assistance resources, donors and aid-receiving countries unanimously agreed to implement the Paris Declaration on Aid Effectiveness (March 2005). This Declaration was localized into the Hanoi Core Statement on Aid Effectiveness, which was unanimously adopted by the mid-term consultative group meeting of Vietnam's donors (in June 2005) and approved on principle by the Prime Minister (in September 2005).

II. EVALUATION OF ODA ATTRACTION AND USE IN THE 2001-2005 PERIOD

1. The situation of commitment, signing and disbursement

In the 2001-2005 period, Vietnam recorded many important achievements in socio-economic development and foreign relations.

Regarding development cooperation, the donors committed to provide Vietnam with a relatively big ODA amount totaling nearly USD 14.9 billion1.

The signed ODA-funded programs and projects were capitalized at more than USD 11.2 billion, including 80% of concessional loans.

ODA disbursements in this period reached over USD 7.9 billion, accounting for 88% of the target set out by the IXth National Party Congress (USD 9 billion).

2. Positive impacts of ODA on the socio-economic development in the 2001-2005 period

According to the assessment of the Party and the State, ODA attraction and use in the past period was basically effective. Donors also viewed Vietnam as a country that used ODA effectively.

In specific domains, ODA has contributed to:

a/ Implementation of Vietnam's foreign policy: Through development cooperation under ODA-funded programs and projects for Vietnam, the governments and peoples of donor countries and international organizations understood and actively supported correct and widely supported socio-economic development policies of the Party and the State of Vietnam.

At present, about 50 bilateral and multilateral donors are providing ODA in most of prioritized development domains in Vietnam. They include:

Bilateral donors: Iceland, the UK, Austria, Poland, Belgium, Canada, Kuwait, Denmark, Germany, the Netherlands, the Republic of Korea, Hungary, Italy, Luxemburg, the US, Norway, Japan, New Zealand, Australia, Finland, France, the Czech Republic, Spain, Thailand, Sweden, Switzerland, China and Singapore.

- Multilateral donors:

+ International financial institutions and funds: The World Bank (WB), the International Monetary Fund (IMF), the Asian Development Bank (ADB), the Nordic Investment Bank (NIB), the Nordic Development Bank, the OPEC Fund for International Development (OFID - the former OPEC Fund), and the Kuwait Fund;

+ International organizations and inter-governmental organizations: The European Commission (EC), the United Nations High Commissioner for Refugees (UNHCR), the United Nations Fund for Population Activities (UNFPA), the United Nations Industrial Development Organization (UNIDO), the United Nations Development Program (UNDP), the United Nations AIDS Coordination Program (UNAIDS), the United Nations Office on Drugs and Crime, the United Nations Capital Development Fund (UNCDF), the Global Environment Facility (GEF), the United Nations International Children's Emergency Fund (UNICEF), the International Fund for Agricultural Development (IFAD), the United Nations Educational, Scientific and Cultural Organization (UNESCO), the International Labor Organization (ILO), the Food and Agriculture Organization (FAO) and the World Health Organization (WHO).

b/ Supplementation of an important capital source for development investment: Under the 2001-2005 5-year plan, ODA accounted for about 11% of total investment capital of the entire society and about 17% of total investment capital from the state budget. The ODA use structure in the 2001-2005 period is shown in Table 1.

Table 1. ODA use structure in the 2001-2005 period

Unit of calculation: Million USD

ODA agreements signed

in 2001-2005

ODA disbursed in 2001-2005

Total

%

Total

%

1. Agriculture and rural development combined with hunger eradication and poverty alleviation

1,818

16%

1,641

21%

2. Energy and industries

1,802

16%

1,375

17%

3. Transport, post and telecommunications, water supply and drainage and urban development, including:

3.801

34%

2,559

32%

- Transport, post and telecommunications

2,753

25%

2,040

25%

- Water supply and drainage and urban development

1,048

9%

519

7%

4. Health, education and training, environment, science and technology, and other branches, including:

3,785

34%

2,332

30%

- Health, education and training

1,171

11%

554

7%

- Environment, science and technology

351

3%

361

5%

- Other branches

2,263

20%

1,417

18%

Total

11,206

100%

7,907

100%

In agriculture and rural development, ODA has considerably contributed to the development of irrigation systems, rural power grids, schools, health stations, rural roads, water supply, small-scale rural credit and integrated rural development combined with hunger eradication and poverty alleviation.

Thanks to ODA, the power sector has significantly increased source output; developed and expanded power distribution networks, including rural power grids. A number of industrial production establishments invested with ODA capital have contributed to creating jobs in some localities.

In transport and post and telecommunications, ODA has contributed to upgrading and developing material and technical foundations and improving service quality. The system of roads, railways, inland waterways, seaports, airways and post and telecommunications infrastructures have markedly developed.

In education and training, ODA has been used to develop material and technical foundations for teaching and learning activities at all levels (primary, lower secondary, upper secondary, tertiary, collegial and vocational training); renew general education textbooks and programs; organize training to raise teachers' professional qualifications; send teachers for overseas training; develop policies and enhance management capacity of the service.

In healthcare, ODA has been used to improve material and technical foundations for medial examination and treatment, promote family planning, prevention and control of HIV/AIDS and communicable diseases; train health workers, support policy formulation and enhance management capacity of the service.

In the domain of environment, ODA has been used to support protection and improvement of the living environment in such areas as forestation, water source management, water supply and drainage, wastewater and garbage treatment in many towns, cities, industrial parks and residential areas.

c/ Development of institutions, enhancement of the capacity of human resources, transfer of modern scientific and technological advances and advanced management experience: ODA has been provided in the form of financial and technical assistance for formulating important laws such as the Enterprise Law, the Land Law, the Commercial Law, the Investment Law, the Bidding Law, the Competition Law, the Anti-Corruption Law and many sub-law documents; and for transferring scientific and technological advances and advanced management experience. A large proportion of human resources has been trained and retrained at home and abroad, making considerable contributions to enhancing the capacity of human resources at all levels;

d/ Economic and social development in localities: ODA has contributed to socio-economic development, hunger eradication and poverty alleviation in many localities, including development of small-scale infrastructure facilities (water supply, roads, schools, health stations, power distribution networks, rural telephony, etc.) and development of agriculture, forestry, irrigation and fisheries in many localities, especially poor provinces, deep-lying, remote and ethnic minority areas. Per capita ODA value was USD 33.98 in the northern midland and mountainous region, USD 18.42 in the Red River delta, USD 52.64 in the northern and coastal Central Vietnam, USD 21.86 in the Central Highlands, USD 25.4 in the eastern South Vietnam, and USD 11.19 in the Mekong River delta.

3. Limitations in ODA attraction and use: The ODA attraction and use has so far revealed the following weaknesses and limitations:

a/ Incorrect and inadequate perception of the nature of ODA: In the past ODA attraction and use, the perception of ODA is incorrect and inadequate in some places and at some time, which takes ODA as free foreign capital or loan capital which the Government has the responsibility to repay. Such incorrect perception has resulted in a number of ineffective ODA programs and projects.

b/ Slow concretization of guidelines, policies and orientations on ODA attraction and use:

Some ministries, branches and localities remain slow in concretizing macro guidelines, policies and orientations on ODA attraction and use into specific programs and projects. Consequently they often remained passive and failed to properly play their leadership role in their cooperation with donors.

Coordination of ODA and other capital sources in different regions and the country as a whole has not been well performed, thus reducing ODA effectiveness.

c/ The legal framework on ODA management and use reveals many constraints:

Regulatory documents on ODA management and use are inconsistent with those on ODA allocation. ODA attraction and use processes and procedures remain unclear and non-transparent. The enforcement of regulator documents on ODA attraction and use is lax.

The ODA management processes and procedures of Vietnam and donors are not truly harmonized, causing delays in the implementation of programs and projects, reducing investment efficiency and increasing transaction costs.

d/ The organization of ODA management and the capacity of ODA management personnel show many weaknesses:

The structure of organization and decentralization of ODA management and use fails to meet the requirements of the process of renewing management of public resources. Personnel involved in management and implementation of ODA-funded programs and projects remain weak in professional capability and international cooperation skills and foreign languages.

The organization and operation regulations of ODA-funded program and project management units remain inadequate.

e/ ODA monitoring and evaluation remains limited: The monitoring and evaluation of ODA-funded programs and projects and the operation of project management units have not yet received due attention; financial reporting, payment and settlement regulations have not yet been strictly complied with and necessary sanctions remain insufficient.

4. Major lessons

The following major lessons can be learnt from the actual ODA attraction and use in the 2001-2005 period:

First, a correct perception of ODA is needed. ODA should be regarded as a supplementary external resource that cannot replace internal resources for the development process of the country, sectors, localities and units that benefit from it. ODA is not a "free gift." ODA mostly consists of foreign concessional loans associated with national prestige and duty in the relation with the international donor community.

Second, to promote the leadership role in ODA attraction and use for a higher ODA use effectiveness in service of the development process, national, sectoral and local socio-economic development strategies, plannings and plans must be based on.

Third, strong commitment, close direction, and participation of beneficiaries will guarantee the effective implementation of ODA-funded programs and projects as well as prevention and combat of losses, waste and corruption.

Fourth, reliable partnership with donors should be developed on the basis of mutual trust, constructive cooperation and share of responsibility in the provision and receipt of ODA as it is an indispensable factor for the effective ODA management and use.

III. ORIENTATIONS FOR ODA ATTRACTION AND USE IN THE 2006-2010 PERIOD

1. Forecasts for development investment capital demand in the 2006-2010 period

a/ Development investment capital demand:

In order to achieve the socio-economic development objectives of the 2006-2010 5-year plan and ensure an average economic growth rate of 7.5-8% per year, it is necessary to mobilize a total investment capital of about VND 2,200 trillion (at the 2005 price), equivalent to nearly USD 140 billion (or USD 160 billion at the current exchange rate), of which 65% will be mobilized from internal sources and 35% from external sources.

In the structure of investment capital to be mobilized from outside, foreign direct investment and ODA capital will play an important role.

b/ ODA capital demand: To meet the demand for externally mobilized capital, it is necessary to execute ODA capital worth about USD 11 billion in the 2006-2010 period2. In order to have this ODA capital amount, committed ODA capital amount should reach USD 19-21 billion3.

2. Forecasts for ODA possibility in the 2006-2010 period

Following are advantages and challenges in ODA attraction and use in the 2006-2010 period:

a/ Advantages: Vietnam have substantial advantages in further attracting and using ODA for the implementation of the 2006-2010 5-year socio-economic development plan:

- The political situation is stable and the comprehensive socio-economic renewal is to be vigorously, deeply and extensively carried out;

- The economy constantly grows at a high rate; social progresses, particularly in hunger eradication and poverty alleviation, have made strong impressions on international friends;

- The deep integration of Vietnam's economy into the global and regional economies has been very active, with a turning point that Vietnam has become an official WTO member.

b/ Challenges:

- The demand for ODA capital in developing countries continues to sharply rise while the global ODA supply remains limited;

- The capacity of organization, management and implementation of ODA-funded programs and projects remains poor, failing to meet the requirements on higher effectiveness of management and use of this capital source;

- The application of new aid approaches and models such as program-based approaches, budget support and other types of support in accordance with the spirit of the Paris Declaration and the Hanoi Core Statement on Aid Effectiveness requires vigorous renewal of domestic management systems, particularly public resource management.

3. Policies on ODA attraction and use in the 2006-2010 period

In the 2006-2010 period, the guidelines for ODA attraction and use are to take advantage of ODA while improving effectiveness of its management and use, and to ensure repayment capability for the successful implementation of the 2006-2010 5-year socio-economic development plan.

In the coming time, ODA attraction and use policies should focus on vigorously improving the situation of disbursement for the signed ODA programs and projects so as to early put the constructed works into operation and use, contributing to increasing ODA effectiveness. At the same time, ODA-funded programs and projects will be formulated for the post-2010 period, focusing on quality and efficiency.

In order to implement the above ODA use guidelines and policies, ODA capital will be prioritized for the following domains:

a/ Development of agriculture and rural areas (including agriculture, irrigation, forestry and fisheries) combined with hunger eradication and poverty alleviation;

b/ Building of synchronized economic infrastructure toward modernization;

c/ Building of social infrastructure (healthcare, education and training, population and development and other fields);

d/ Protection of the environment and natural resources;

e/ Enhancement of institutional capacity and development of human resources; technology transfer; and raising of research and development capacity.

In order to ensure effective ODA use, the Government of Vietnam makes strong commitments to closely cooperate with donors in implementing the Paris Declaration and the Hanoi Core Statement on Aid Effectiveness.

4. Guiding principles for ODA attraction and use

a/ Promoting the country's leadership role:

Programs and projects calling for and using ODA shall be developed on the basis of national, sectoral and local five-year socio-economic development plans.

Ministries, branches, localities and units that are ODA beneficiaries must take the initiative in integrating ODA-funded programs and projects into their 5-year socio-economic development plans.

b/ Selecting suitable domains for ODA use: ODA capital and capital of other sources shall be harmoniously and selectively combined. The use of ODA must take into account economic and social factors, and benefits from the transfer of capital, knowledge, technology, advanced managerial skills and experience must be thoroughly analyzed. ODA may not be used too extensively as this will cause unsustainable foreign debt burdens to the country;

c/ Maximizing the effectiveness and pervasive impacts of ODA: Decisions on ODA use shall be made based on the cost-benefit evaluation of programs and projects so as to be ascertained that these programs and projects will be highly effective and have maximum pervasive impacts, contributing to the realization of development priorities set out in the 2006-2010 5-year socio-economic development plan.

e/ Mobilizing participation of beneficiaries: Participation of beneficiaries at all levels shall be mobilized in the process of preparing, implementing, supervising and monitoring ODA-funded programs and projects with a view to making public and transparent the management and use of this capital source and preventing losses, waste and corruption;

e/ Building reliable partnership with donors: Mutual trust, better understanding and mutual respect shall be developed between Vietnam and donors on the basis of promoting open and constructive dialogues at policy and implementation levels; corruption shall be resolutely repelled; efforts shall be made to harmonize ODA processes and procedures in order to reduce transaction costs; difficulties and problems shall be removed to accelerate disbursements to raise investment efficiency; the commitments between the Government and donors, particularly those in the Hanoi Core Statement on Aid Effectiveness, shall be seriously executed.

5. Donor policies on the provision of ODA to Vietnam

Within the framework of the Hanoi Core Statement on Aid Effectiveness, donors confirm to base their aid policies on Vietnam's 2006-2010 5-year socio-economic development plan, the comprehensive poverty reduction and growth strategy (CPRGS), priority national programs and priority programs of branches and localities to support the achievement of the development goals of increasing growth, ensuring social progress and equity, developing institutions and enhancing the capacity of human resources.

In granting ODA to Vietnam, donors commit together with the Government to implement the following five pillars to increase the effectiveness of this capital source:

a/ Promoting Vietnam's leadership role in developing and implementing socio-economic development programs;

b/ Complying with Vietnam's management systems in parallel with supporting the strengthening of these systems toward publicity, transparency and accountability;

c/ Intensifying harmonization and simplification of ODA provision and receipt processes and procedures between donors and the Government of Vietnam to ensure execution schedule and reduce transaction costs;

d/ Applying results-based management solutions to synchronously implement monitorable and assessable solutions to achieve the set development goals;

e/ Sharing joint responsibility for the development process in general and ODA programs and projects in particular.

6. Forecasts for ODA to be committed, signed and disbursed in the 2006-2010 period

a/ Forecasts for committed ODA: On the basis the results of analysis and evaluation of the world ODA situation and trends and Vietnam's advantages, difficulties and challenges in ODA attraction and use in the 2006-2010 period; experiences and lessons learnt from ODA attraction and use in the 1993-2005 period; and the findings of a survey of donors conducted in February 2006, it can be predicted that in the 2006-2010 period, the committed ODA amount for Vietnam will reach about USD 19-21 billion, an annual average of USD 4 billion and an average increase of 8% compared with the committed ODA level of 2005.

b/ Forecasts for signed ODA:

- ODA signed in the 2001-2005 period to be carried forward to the 2006-2010 period will be about USD 8 billion;

- ODA to be signed in the 2006-2010 period is forecast to reach about USD 12.35-15.75 billion;

Total ODA to be signed in the 2006-2010 period will reach about USD 20.35-23.75 billion;

The findings of the survey of donors also revealed that total ODA of programs and projects to be signed in the 2006-2010 period will be about USD 23.23 billion, close to the above forecasts on signed ODA capital.

c/ Forecast for disbursed ODA:

Total ODA to be disbursed in the 2006-2010 period is forecast to reach about USD 11.46-12.41 billion.

According to the findings of the survey of donors, total ODA to be disbursed in the next five years will reach about USD 10.9-12.3 billion.

With the above forecasts, it can be affirmed that the target of USD 11.9 billion of ODA set for the 2006-2010 5-year socio-economic plan is achievable.

7. Oriented structures of ODA attraction and use by sectors, domains and regions in the 2006-2010 period

a/ Sector- and domain-based ODA use structure:

The sector- and domain-based ODA use structure is shown in Table 2:

Table 2. Domain-based ODA structure in the 2006-2010 period

Sectors, domains

Structure of implemented ODA in 2001-2005 period

Projected period structure of signed ODA in 2006-2010 period

Total signed ODA (in USD billion)

Agriculture, irrigation, forestry, fisheries combined with agricultural and rural development, hunger eradication and poverty alleviation

21%

21%

4.27-4.98

Energy and industries

17%

15%

3.05-3.56

Transport, post and telecommunications, water supply and drainage and urban development

32%

33%

6.72-7.84

Healthcare, education and training, environment, science and technology and other sectors (including institution building, capacity enhancement, etc.)

30%

31%

6.31-7.37

Total

100%

100%

20.35 - 23.75

Compared with the 2001-2005 period, the ODA allocation policy in the 2006-2010 period will continue maintaining a large ODA proportion (21%) to support agricultural development, irrigation, forestry and fisheries combined with hunger eradication and poverty alleviation; concentrate concessional ODA loans (15%) on supporting development of the power grids and distribution stations; increase the proportion of ODA (33%) for development of transport, post and telecommunications, water supply and drainage, and urban infrastructure development. A large proportion of ODA (31%) will be maintained in the domains of healthcare, education and training, environment, science and technology and other sectors.

b/ Region- and territory-based ODA use structure: In the 2006-2010 period, the Government will closely cooperate with donors to increase the proportion of ODA to be used in direct support of localities in prioritized regions, specifically actively calling for ODA for poor and difficult regions including the northern midland and mountainous region, the northern and coastal Central Vietnam, the Central Highlands and the Mekong River delta.

8. Orientation for prioritizing sector- and domain-based ODA attraction and use

a/ Agricultural and rural development (including agriculture, irrigation, forestry and fisheries) combined with hunger eradication and poverty alleviation: To prioritize ODA attraction and use for carrying out programs and projects to increase agricultural productivity; develop small-scale essential rural infrastructure facilities for the poor (rural transport, daily-life water supply, schools, health stations, etc.); develop irrigation works in combination with prevention and reduction of natural calamities; increase management of forest resources and other natural resources in a sustainable manner; create jobs in combination with hunger eradication and poverty alleviation; increase the capacity of management officials at all levels, particularly at district, commune and village levels;

b/ To build comprehensive economic infrastructure toward modernization.

Regarding electricity, to prioritize ODA attraction and use for further developing the electricity sector, especially development of power grids and distribution stations and particularly development of rural power grids. To develop renewable energy sources such as small-scale hydropower works, solar power, wind power and geothermal power in rural and mountainous areas and islands in which development of the national power grid will not be cost effective;

The use of ODA for some industrial production programs and projects must be carefully considered to ensure effectiveness and efficiency and comply with the self-borrowing and self-repayment principle.

Regarding transport, to prioritize ODA attraction and use for the following domains:

- Developing the system of North-South expressways and main trunk roads in economic regions; prioritizing development of roads in the northern mountainous region, the Central Highlands and the Mekong River delta; strongly developing the system of expressways, particularly in key economic regions; developing traffic corridors within the framework of cooperation in the greater Mekong Sub-region (GMS), the Vietnam ' Laos ' Cambodia development triangle and the Two Corridors and One Economic Belt of Vietnam and China; building some big road bridges in all three regions, North Vietnam, Central Vietnam and South Vietnam, including Cao Lanh and Vam Cong bridges under phase-II Ho Chi Minh Highway project; developing rural transport, upgrading district roads, ensuring smooth travel from villages and hamlets to commune centers all the year round; and investing in improving road traffic safety and road maintenance;

- Upgrading and building some railways, including the Hanoi-Ho Chi Minh city express railway; increasing the capacity of management and administration of the railway sector;

- Building some deep-water ports, including Van Phong port in Khanh Hoa and Lach Huyen port, a depot port, in Hai Phong;

- Building some international airports in some provinces and cities in line with the master plan on development of the national system of airports, first of all, building a new modern international airport in Hanoi capital (T2 international airport), Long Thanh in Bien Hoa, Da Nang (a terminal), Cam Ranh in Khanh Hoa (a terminal) and Phu Quoc in Kien Giang;

- Supporting investment in developing the systems of important inland waterways in the Red River delta and Mekong River delta;

- Developing institutions and enhancing the capacity of human resources in the domain of transport, especially traffic safety.

Regarding post and telecommunications, to prioritize ODA attraction and use for supporting investment in developing post and telecommunications infrastructure facilities of national importance which serve the common needs of all economic sectors, ensuring fair competition among enterprises and the interests of users; and developing rural telephony.

Regarding water supply and drainage and urban development, to prioritize ODA attraction and use for supporting building and incremental modernization of synchronous urban infrastructure systems, perfecting daily-life water supply systems, supplying sufficient clean water for urban centers and industrial parks; continuing renovating and building rural clean water supply systems, especially the Mekong River delta, Central Vietnam, northern mountainous region, coastal Central Vietnam and the Central Highlands; fundamentally solving the issues of water drainage, treatment of wastewater, solid wastes and medical rubbish in urban centers, particularly cities of grade 1 or 2, industrial parks and some big urban centers and residential areas.

Regarding urban development, ODA will be prioritized for solving urban traffic problems, especially in big cities like Hanoi and Ho Chi Minh, developing belt roads in big cities, inner-city roads; step by step developing the network of mass transit (overhead railways, metro, etc.); supporting policy and institutional development in the domain of society governance.

c/ Building social infrastructure facilities (healthcare, population and development, education and training and other domains):

Regarding healthcare, population and development, to prioritize ODA attraction and use for supporting upgrading and procurement of medical equipment for hospitals, especially provincial- and district-level general hospitals; support the achievement of the Millennium Development Goals (MDGs) in the healthcare domain, such as reduction of birth rates, child mortality and malnutrition rates, and improvement of reproductive health of mothers, prevention of HIV/AIDS, malaria and other diseases; enhancing policy formulation and implementation capacity and increasing training of management personnel in the health service.

Regarding education and training, to prioritize ODA attraction and use for supporting the achievement of MDGs in the education and training domain; improving education quality and universalizing education; improving vocational training; building and modernizing some key universities and training disciplines, building some laboratories engaged in research and training; developing education in difficult areas; training cadres, especially at grassroots level and in rural and mountainous areas; supporting policy formulation and implementation, developing institutions and enhancing the management capacity of the service.

d/ Regarding environment and natural resources: To prioritize ODA attraction and use for supporting the achievement of the environment-related objectives set out in the 2006-2010 5-year socio-economic development plan, including implementation of plans on sustainable management of natural resources; supporting implementation of Agenda 21 on sustainable development; supporting implementation of international goals regarding environment and pollution reduction; improving the urban environment and increasing the capacity of preventing, combating and overcoming consequences of natural calamities;

e/ Enhancing institutional capacity and developing human resources; technology transfer, improving research and development capacity:

For enhancing institutional capacity and developing human resources, to prioritize ODA attraction and use in such domains as perfecting legislation on economic management and society governance after Vietnam joins the WTO; formulating and implementing economic management policies, reforming financial and banking systems; stepping up state management of economic activities in parallel with enhancing grassroots capacity; enhancing the capacity of people-elected agencies at all levels and central and local state management agencies; enhancing the capacity of comprehensive management of state capital-funded programs and projects, including the program and project monitoring and evaluation system; accelerating public administration reform oriented at the poor; minimizing bureaucracy, repelling corruption and exercising democratic state management with the participation of the people.

Regarding science and technology, raising of research and development capacity: To prioritize ODA attraction and use for supporting building and upgrading of key research institutions and universities to reach the advanced regional level; through ODA programs and projects to attract the latest scientific and technological achievements, production and business know-hows; and modernizing and improving the quality of hydro-meteorological forecasts.

e/ Employment and social welfare, gender equity, protection of the interest of children; development of Vietnamese youth; and prevention and combat of social evils: To prioritize ODA attraction and use for creating jobs, raising the rate of female laborers, increasing the rate of trained laborers, reducing unemployment rates in cities; ensuring gender equity, enhancing women's status through abolishing gender disparities at primary and secondary ethnic minority students, increasing the number of women in people-elected bodies at all levels, increasing the number of women working in various agencies and sectors and reducing women's vulnerability to domestic violence; ensuring the rights of children; reducing the vulnerability of disadvantaged and poor people and developing a social welfare and relief network for them; and formulating a natural disaster prevention and reduction strategy.

9. Orientations for ODA attraction and use to directly support various regions in the 2006-2010 period

a/ The northern midland and mountainous region: To prioritize ODA attraction and use for carrying out programs and projects in such domains as sustainable silviculture development; access to infrastructure services including power, irrigation, clean water and rural roads; ethnic minority development; building of boarding schools for ethnic minority students and supply of equipment for universities; supply of equipment for provincial-level hospitals and establishment of health centers; development of infrastructure to boost economic relations with China; and building of administrative management capacity at all levels;

b/ The Red River delta and key northern economic region: To prioritize ODA attraction and use for supporting the achievement of the development goals in such domains as modernization of infrastructure; renovation of other infrastructure services; building of, and supply of equipment for, some universities; development of the system of vocational training schools; diversification of incomes for farmers' households; provision of more equipment for provincial and municipal hospitals; prevention and combat of environmental pollution; and building of administrative management capacity at all levels;

c/ The northern and coastal Central Vietnam: To prioritize ODA attraction and use for carrying out programs and projects in such domains as sustainable management of natural and forest resources; irrigation systems; reduction of natural calamities; rural roads; assistance for coastal fishermen and ethnic minority people; development of infrastructure to promote trade with other regions in the country and international partners; development of the system of vocational training schools, and the healthcare system; and building of administrative management capacity at all levels;

d/ The Central Highlands: To prioritize ODA attraction and use for such domains as forestation and protection of national parks; building of irrigation facilities; prevention and control of natural disasters and diseases; upgrading of national highways connecting coastal Central Vietnam provinces, and roads linking with Cambodia and Laos; improvement of accessibility to rural infrastructure facilities; expansion of income generation opportunities for rural inhabitants; and building of administrative management capacity at all levels;

e/ The eastern South Vietnam, embracing the key southern economic region: To prioritize ODA attraction and use for carrying out programs and projects in such suitable domains as provision of scientific and technological supports for agricultural development; accelerated planting of coastal protection forests; building of roads including belt roads surrounding Ho Chi Minh City, modernization of railways and waterways, building of a new international airport and building of a water supply and drainage to improve the urban environment; provision of more medical equipment for provincial hospitals; construction of vocational schools; and building of urban management capacity;

f/ The Mekong River delta: To prioritize ODA attraction and use for such domains as sustainable management of natural resources; irrigation systems; rural roads; development of waterways transport; restoration of the railway from Ho Chi Minh City to My Tho; development of infrastructure of Can Tho city; development of environmental infrastructure; investment in integrated rural development; improvement of health and education services; development of vocational training schools; building of Can Tho university into a key national one; and building of administrative management capacity at all levels.

10. Orientations for ODA attraction and use based on donors

Donors have different aid policies and volumes. They also have different strengths in providing ODA for Vietnam. The Government will strive to exploit to the maximum the strengths of each donor, and coordinate donors' joint efforts to effectively use ODA capital in the spirit of the Hanoi Core Statement on Aid Effectiveness, contributing to the successful implementation of the 2006-2010 5-year plan.

a/ For development institutions like the Japan Bank for International Cooperation (JBIC), the World Bank (WB), the Asian Development Bank (ADB), the French Development Agency (AFD) and the German Reconstruction Bank (KfW): The Government will attract and use their ODA for national and regional economic and social infrastructure facilities as well as urban infrastructure in some key cities and towns, serving as catalysts for fast and sustainable economic and social development, and hunger eradication and poverty alleviation across the country and in localities; supporting institutional development and building of the capacity of human resources;

b/ For bilateral donors and multilateral institutions: The Government will attract and use their ODA for programs and projects in the following domains:

- Supporting the building of small-scale economic and social infrastructure in rural, mountainous and ethnic minority areas combined with hunger eradication and poverty alleviation;

- Supporting the building of the capacity of human resources and development of institutions, especially in post-WTO issues and in localities;

- Increasing co-financing to expand investment and reducing ineffectiveness and overlapping in case of investment made by separate investors;

- Providing technical assistance to raise the quality of preparation of investment projects; simplify ODA processes and procedures to accelerate disbursements and reduce Vietnam's debt burden of ODA loans;

- Providing budget support for some target programs and some provinces to invest in social and economic infrastructure facilities in rural, mountainous and ethnic minority areas.

11. Orientations for the use of aid modalities and models: As aid modalities and models are very diversified, it is necessary to select an appropriate method based on the scale, nature and conditions applicable to each specific case to ensure high ODA use effectiveness.

a/ Aid modalities:

To prioritize non-refundable ODA for programs and projects incapable of capital recovery, particularly direct support for the poor and localities meeting with many difficulties; to reserve technical assistance programs and projects for development research, capacity and institution enhancement, support of the preparation of ODA loan-funded projects in order to reduce the Government's foreign debts;

To prioritize refundable ODA, particularly highly concessional loans (low interest rate, long payment duration and grace period) for developing social and economic infrastructure. For less concessional ODA loans (higher interest rate, short payment duration and grace period), they should be used for programs and projects that are highly economically feasible and capable of debt payment;

b/ Application of new aid models: To step up the application of new aid models such as program- and sector-based approaches, general budget supports and budget supports for carrying out national target programs with a view to promoting the Government's leadership role, reducing transaction costs, increasing procedure harmonization and compliance with the Government's systems, and accelerating disbursements for ODA-funded programs and projects.

IV. OVERALL ORIENTATIONS FOR ODA ATTRACTION AND USE AFTER 2010

According to international financing practice, a developing country with an average income (per capita GDP of over USD 1,000) will enjoy less ODA with highly concessional conditions.

According to the 2006-2010 5-year socio-economic development plan, by 2010, Vietnam's per capita GDP will reach USD 1,050. Therefore, the proportion of highly concessional ODA capital to total ODA capital in the post-2010 period will decrease while ODA loans with conditions close to those on commercial loans may increase. In the 2006-2010 period, it is necessary to start researches into the use of new loans with less concessional conditions from the International Bank for Reconstruction and Development (IBRD) within the World Bank group (WB), ordinary credit resources (OCR) of the Asian Development Bank (ADB), Japan's other official funds (OOF), France's guaranteed loans 3 (PS 3) and Germany's development loans, in order to prepare conditions for the attraction and effective use of these capital sources in the post-2010 period, such as expanding ODA beneficiaries to include private economic sectors; adjusting orientations for ODA use, concentrating ODA mainly on priority domains capable of quick capital recovery and assuring sustainable repayment of loans.

V. MAJOR SOLUTIONS

In order to implement the Scheme on orientations for ODA attraction and use in the 2006-2010 period, the Government will implement the following policies and measures:

1. Group of policy and institutional measures:

a/ Raising awareness of the nature of ODA, promoting the leadership spirit in the attraction and use of this capital source to serve the development goals of the country, ministries, sectors and localities;

b/ Managing public investment capital sources in a transparent and accountable manner; further improving the Government's public procurement system to meet international standards in this domain; carrying out programs and taking specific measures to prevent and combat corruption;

c/ Ensuring uniformity, consistency, clearness, transparency, simplicity and enforceability of the system of regulatory documents on ODA management and use;

d/ Perfecting domestic financial policies on ODA, specifically:

- Implementing the action plan for implementing the orientations for management of foreign debts till 2010;

- Publishing policies on re-lending specific ODA loans to each program and project in each investment domain and geographical area;

- Ensuring tax policies that are open and easy to implement for ODA-funded programs and projects;

- Promoting ODA management in accordance with the Budget Law.

d/ Promoting monitoring and evaluation of ODA-funded projects:

- Setting up an official database on ODA-funded programs and projects to serve the monitoring, assessment and analysis of the use of this capital source;

- Institutionalizing the monitoring and evaluation of ODA-funded programs and projects in documents guiding Decree No. 131/2006/ND-CP on management and use of ODA capital;

- Developing mechanisms to ensure community-based monitoring and supervision, contributing to the implementation of measures against loss, waste and corruption;

- Developing and applying necessary sanctions to encourage ODA beneficiary units to effectively use this capital source and prevent and strictly handle those that ineffective use this capital source and violate regulations on ODA management and use.

2. Group of organizational measures:

a/ Improving the organizational structure of key agencies in charge of ODA management and use at all levels, particularly provincial/municipal Planning and Investment Services so that they will be able to assist the People's Committees at all levels to assess ODA-funded programs and projects;

b/ Improving the organizational structure and operation of ODA-funded program or project management units;

c/ Accelerating the operation of the Government's ODA task force in promoting disbursements for ODA-funded programs and projects.

3. Group of measures to enhance ODA attraction and use capacity:

a/ Raising the knowledge of leaders and officials engaged in managing and implementing ODA-funded programs and projects at all levels about Vietnam's and donors' ODA policies, processes and procedures;

b/ Raising the capacity of preparation for ODA-funded programs and projects;

c/ Enhancing capacity for project management units toward professionalization and sustainability.

4. Group of measures to ensure publicity and transparency:

a/ Developing a system of indicators as a basis for selecting ODA-funded programs and projects to be included in the financing list according to current regulations;

b/ Considering the expansion of the category of ODA beneficiaries to include non-state entities for implementing programs and projects to serve public interests on the basis of compliance with relevant laws on attraction and effective use of ODA;

c/ Disclosing all information and documents on ODA to all ministries, sectors and localities as a basis for preparing for ODA-funded programs and projects.

5. Group of information and communication measures:

a/ State management agencies, agencies managing beneficiary units and beneficiary units themselves have the duty to supply according to their authority full and accurate information on ODA access and use to people-elected agencies and the mass media upon request, contributing to explaining and directing public opinion on this resource;

b/ Maintaining and diversifying the website and bulletin on ODA so that they can actively serve the attraction and use of this capital source, and publicize necessary information on ODA;

c/ Promoting the provision of information on ODA overseas, including promotion activities to attract this resource in foreign countries;

d/ Awarding honorable prizes to individuals and collectives in the country, foreign donor countries and international institutions for their great and effective contributions to the provision and use of ODA for Vietnam's socio-economic development.

6. Measures to enhance partnership with donors:

a/ Improving the quality of dialogues between the Government and donors through already established mechanisms such as annual and mid-term consultative group meeting, sector-based partnership groups and partnership groups on aid effectiveness (PGAE)

b/ Promoting the leadership role and raising the initiative of ministries, sectors and localities in calling for ODA from donors;

c/ Closely cooperating with donors in implementing the Paris Declaration and the Hanoi Core Statement on Aid Effectiveness;

d/ Urging donors to join their efforts on the basis of common interests for the purpose of rationalization and harmonization of processes and procedures to reduce transaction costs and raise aid effectiveness;

e/ Carrying out activities to harmonize the Government's and donors' procedures for preparing, implementing, monitoring and evaluating ODA-funded programs and projects.

VI. ORGANIZATION OF IMPLEMENTATION OF THE SCHEME

1. Grasping and integrating the Scheme's contents into the 2006-2010 socio-economic development plans at all levels; State management agencies in charge of ODA, agencies managing beneficiary units and beneficiary units themselves shall grasp the spirit, guiding principles and orientations for ODA attraction and use in the 2006-2010 period set out in the Scheme to formulate ODA-funded programs and projects in this period; integrating them in the implementation of sector and local socio-economic development plans, and mobilize ODA in line with this Scheme.

2. Coordinating with donors: The Ministry of Planning and Investment, the Ministry of Foreign Affairs, overseas diplomatic missions, ministries, sectors and localities shall, within the scope of the respective functions, introduce the Scheme's contents to donors and, at the same time, promote coordination among domestic agencies and cooperation with donors in the process of preparing for and implementing specific projects in line with the Scheme's orientations.

3. Monitoring, reporting and updating the Scheme: The Ministry of Planning and Investment shall assume the prime responsibility for monitoring the implementation through the action plan for implementing the Scheme, report it to the Prime Minister on a periodical basis; assume the prime responsibility for, and coordinating with concerned agencies in, periodically updating the Scheme in accordance with the realities and new forecasts related to the Scheme.

Prime Minister

NGUYEN TAN DUNG

Note:

1 From 1993-2005, the international donor community committed to USD 32.53 billion, signed ODA agreements on USD 22.6 billion, and disbursed USD 15.9 billion.

2 In the five years 2001-2005, total executed ODA reached USD 7.9 billion.